Baltimore-based Legg Mason Inc. (LM) reported a rise in its assets under management (AUM) as of Jan 31, 2014, as compared with the prior month. Preliminary month-end AUM came in at $679.9 billion, slightly up from the end of Dec 2013.
The marginal rise from the previous month mainly resulted from net inflows, partially offset by market depreciation. Both liquidity and long-term flows were positive, with marginal inflows in equity and fixed income for the month.
Legg Mason’s equity AUM as of January-end decreased 2.6% from the previous month to $177.8 billion. However, fixed income AUM nudged up 0.8% from the prior month to $358.4 billion.
The fall in equity income was offset by rise in fixed income AUM, thereby resulting in long-term AUM of $536.2 billion. The figure marked a drop of 0.4% from the prior month. Liquid assets, which are convertible into cash, rose 1.6% to $143.7 billion.
Among other investment managers, Invesco Ltd. (IVZ) announced a fall in its AUM for Jan 2014, which came in at $764.9 billion. Also, Franklin Resources Inc. (BEN) declared preliminary AUM of $857.2 billion by its subsidiaries for Jan 2014, which marked a decline from the prior month.
We believe that Legg Mason has the potential to outperform its peers in the long run, given its diversified product mix and leverage in the changing market demography. Moreover, a significant rebound in equity markets in the coming quarters would be a catalyst.
However, in the near term, asset outflows might remain a significant headwind. Nevertheless, owing to the company’s restructuring initiatives and aggressive cost cuts, we expect operating efficiencies to improve and dividend payments to raise investors’ confidence in the stock.
Currently, Legg Mason carries a Zacks Rank #2 (Buy). A better-ranked asset manager worth consideration is Waddell & Reed Financial, Inc. (WDR) with a Zacks Rank #1 (Strong Buy).
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